Archive for September, 2009

Implausible deniability

Monday, September 21st, 2009

The Obama administration seems to be well on the way to surpassing the record for ineptitude of the Carter administration. Its actions in the ballistic missile defense situation in eastern Europe are about as bad as it can get.

UPDATE: There is another theory about Obama’s actions. It is that his actions are deliberate gestures and indicate his contempt for the US allies he insults.

We must keep in mind the fact that Obama is not a yokel and that the State Department is there to prevent an ill-informed president from unnecessarily stepping on toes. What happened last Thursday was a deliberate gesture. It was aimed at our allies in eastern Europe and at Russia, and it was recognized as such in Poland, the Czech Republic, and Russia. Vladimir Putin spoke of Obama’s decision as a courageous act. Our friends in eastern Europe would not have used that adjective. A signal has been given, and they know the meaning.

We are living in a dangerous time. It seems highly unlikely that Barack Obama will get his way in domestic affairs. The Democrats may control Congress, but they now fear a rout in 2010, and they are likely to tread with caution from now on. In foreign affairs, however, presidents have a relatively free hand, and this president has ample time to do damage to a country that, there is reason to suspect, he deeply hates.

I don’t know if this is a credible explanation but nothing in American history so far explains these actions.

Last week the Obama administration announced that it was reconfiguring U.S. plans for ballistic missile defense (BMD) in Europe, beginning with halting plans for installations in Poland and the Czech Republic. The shift would include an increased emphasis on Aegis-equipped warships already being upgraded to BMD capability that would patrol the waters of the North Sea and Mediterranean. At a press conference last Thursday, U.S. Secretary of Defense Robert Gates emphasized the technical rationale for the decision: The assessment of Iran’s ability to develop an intercontinental ballistic missile had shifted, indicating that the development of such a missile is a long way off; this new scheme would protect Europe, which was still at risk and would continue to be vulnerable; and the new scheme would be in place sooner and ultimately would be more effective.

As it happened, technology aside, the decision met one of Russia’s ongoing demands — that the United States should not base BMD installations in Poland and the Czech Republic. However, Gates stated that “Russia’s attitude and possible reaction played no part in my recommendation to the president on this issue. Of course, considering Russia’s past hostility toward American missile defense in Europe, if Russia’s leaders embrace this plan, then that will be an unexpected — and welcome — change of policy on their part.”

This is unbelievable and is a cause for worry that the Russians will perceive this statement as worse than weakness.

U.S. President Barack Obama insisted that the decision had nothing to do with the Russians, saying it was merely a bonus if Russia’s leaders ended up “a little less paranoid” about the United States. Speaking to CBS’s “Face the Nation,” Obama said, “My task here was not to negotiate with the Russians. The Russians don’t make determinations about what our defense posture is.”

If Gates and Obama are to be believed, the decision to halt deployment in the Czech Republic and Poland was made without any consideration of Russian views whatsoever. It was simply the result of technical and military analysis, and the question of how the major power in the region — Russia — might react simply wasn’t considered.

Once again, this is simply not credible.

The issue is not, as the president has put it, one of Russian paranoia. The Russians might well be paranoid, but that paranoia is not a matter of incidental importance to the United States. Unless the United States is abandoning the idea of sanctions and moving to accept Iran as a nuclear power, or has already made the decision to strike Iran, Russia — paranoid or not — is important to the United States. We suspect that it crossed someone’s mind that in making this move now, the United States would be capitulating to a major Russian demand.

Certainly, it could not have escaped the administration’s attention that the decision, regardless of how it was made, would be seen by all as a response to the Russians. This is how the Poles and Czechs saw it; it is how the Russians saw it; it is how any reasonable observer would have seen it. That’s because this was a core Russian demand and because the announcement came two weeks before the meetings on Iran.

Is Obama really this incompetent?

In foreign policy, it is always important to be prepared to pretend that the elephant is not in the room. But there has to be a touch of plausibility to the pretense. In this case, the problem is that the administration’s description of how it made this decision indicates breathtaking incompetence. In saying they took the decision without considering diplomatic consequences, U.S. officials are claiming the administration doesn’t know how to play major league ball — and seem proud of that.

Maybe he is really this incompetent. Let’s look at Israel, another erstwhile ally. Obama promised change we could believe in and he has been as good as his word .

U.S. relations with Israel have had their minor bumps, but Israeli trust of America and respect for the American president have been constant. This was true whether the president was Nixon or Carter, Clinton or George W. Bush.

As a result, Israeli prime ministers — even crusty old war horses like Yitzak Shamir and Ariel Sharon — have struggled mightily to remain on good terms with the U.S. president. It can be argued that when a brash young Benyamin Netanyahu got on President Clinton’s bad side, the price was his office.

But in nine months all of this has changed. A recent survey sponsored by the Jerusalem Post showed that only 4 percent of Israelis believe that President Obama’s policies are more pro-Israel than pro-Palestinian. Considering that the margin of error in the poll was 4.5 percent, one might wonder whether any Israeli, or at least any Israeli Jew, believes Obama is on the side of America’s long-time ally.

Meanwhile 51 percent of those polled believe that Obama’s policies are more pro-Palestinian than pro-Israel. When more than half of the Israeli population believes that the American president tilts towards their sworn enemies, it’s fair to say that Obama has produced a sea-change in this small but important corner of the world.

But this is only the beginning of “change you can scarcely believe” in Israel. For decades Israelis have been bitterly divided, often more or less down the middle, over politics. And throughout much of this period, Benyamin Netanyahu has been among the most divisive Israeli politicians.

When Netanyahu formed a largely “right-wing” coalition government earlier this year, his regime was considered fragile even by Israeli standards. But then the Obama administration insisted that Israel halt all new construction in West Bank settlements, including construction of new homes within large settlements to accommodate natural population. Then it protested plans to build a new apartments in East Jerusalem.

When Netanyahu rejected these demands, his popularity soared. Obama had transformed the least lovable of all Israeli politicians into a leader around whom a strong majority of Israelis could rally.

How has Obama’s change in policy affected the Arabs, his preferred partners in the middle east ? There is no sign of any positive response as the Arabs worry much more about Iran than about Israel, rhetoric notwithstanding. They see the same weakness in Obama as he considers abandoning Afghanistan and accepting Iran as a nuclear power.

This will not end well.

Aaron Corp’s only start at USC

Saturday, September 19th, 2009

Well, Washington won the game after SC lost a series of turnovers inside the red zone. Two fumbles lost and another one recovered. Corp threw an interception and barely avoided a couple of others. The defense played a great game but they have to have some help. If Barkley isn’t healed next week, I suspect Mitch Mustain will get his chance. Corp was ineffective. I also giove Washington a lot of credit but, let’s face it, turnovers inside the red zone will lose games.

What is a basic education ?

Saturday, September 19th, 2009

I have been spending a lot of time with the health reform legislation lately and have begun to wonder what people understand and what the consequences are of failure to understand some basic concepts. I’m not the only one.

What kind of education would one need to make sense of the current health-care debate? As the U.S. rethinks its academic standards and international competitiveness, this is not a bad time to ask what American citizens, voters, and taxpayers need by way of knowledge and skills to form reasonable conclusions about the hottest domestic policy issue of the day.

Today’s elites seem certain that John Q. Public is irremediably ignorant about, and perhaps oblivious to, the health-care debate, and thus susceptible to being misled, brainwashed, or cowed. Some Democrats are convinced that the insurance industry is creating “movements” bent on misleading and confusing people and planting suspicion in their hearts, while at least one GOP congressman and more than a few conservative pundits and talk-show hosts say President Obama is lying. All these folks seem to assume that the masses cannot possibly understand the debate. But must we accept that as a given? What would it take to comprehend the health-care battle?

OK, how do we get that education ? I grew up in the 1940s and 50s, went to Catholic school and still have sharp memories of my early schooling. For example, I was reading (For the 20th time, at least) The King Must Die, by Mary Renault, one of my favorite authors. It brought to my mind that, in elementary school, I learned the fact that King Minos had a great fleet and that Crete had “wooden walls” on the sea. These small items of history were common in elementary education at the time I was a child. I wonder how many children today would know what I was talking about.

I read to my children as they grew up. When they were small, I read “The Lord of the Rings” and “Watership Down,” both fantasy literature. Interestingly enough, children’s literature is now being de-monsterized meaning the scary stories are being removed so that children are not frightened by the stories. I can’t find the link right now where this was discussed but it makes clear that there is a reason why children’s literature has so many frightening stories. Those fears are part of children’s lives and working them out in fiction may be helpful in assisting children to cope with the real events of life. Most fairy tales are actually based on frightening events. Jack and Jill fell down the hill. Hansel and Gretel were abandoned by their parents in the woods. Sleeping Beauty and Cinderella both had wicked stepmothers in an era when the possibility of the death of mothers was very real.

All of my children read although reading seems to increase in attraction as they grow older. Reading for pleasure is an activity of childhood that has been devastated by television. Children who do not read a lot, have difficulty with reading and with reading comprehension. It is a skill that grows with practice. They will learn no history from television. Only reading will bring them into a historical world where things fit into place in the greater scheme of things. It was easier for me because we had no television. In fact, because my father was in the juke box business, he hated television and refused to have one in the house. When I was in eighth grade, I didn’t know who Jackie Gleason was. That was a social handicap. Eventually, a family friend gave us a TV set for Christmas and the barrier was broken. Fortunately, by that time habits of a lifetime were set and I have never been much interested in TV. At one time, with my first wife, I had a set of earphones with a long cord. I would sit and read with the earphones on as she watched TV. I mostly listened to classical music in those days. It goes well with reading.

What do we do about the poor quality of schools today ? I don’t know. Spending lots of money on schools isn’t the answer.
In 1977, when the story begins, Kansas City’s schools were in simply terrible shape. The city, like most others of its size (pop. 460,000), had experienced white flight from the 1950s on, and the school district even more so, even whites resident in the city pulling their kids out of the public schools. By 1977 enrollment was 36,000, three quarters of them racial minorities (which at that point meant mostly African Americans). The voters had not approved a tax increase for the district since 1969. In 1977 litigation commenced, members of the school board, district parents, and some token children suing the state and some federal agencies on the grounds they had permitted racial segregation. Federal judge Russell Clark, a Jimmy Carter appointee, got the case.

The solution seemed obvious.

After eight years of litigation, Clark gave the plaintiffs everything they wanted, and then some. He in fact ordered them to “dream” — to draw up a money-no-object plan for the Kansas City school system.

Dreaming is no problem for educationists. The plaintiffs — education activists and their lawyers — duly dreamt, with an initial price tag of $250 million for their dreams. This was twice the district’s normal annual budget.

It proved to be only a start, however. Over the next twelve years the district spent over 2 billion dollars, most of it from the state of Missouri, the balance from increased local property taxes. Fifteen new schools were built and 54 others renovated.

The results ?

After twelve years, test scores in reading and math had declined, dropout rates had increased, and the system was as segregated as ever, in spite of heroic efforts to lure white students back into the system.

Kansas City did all the things that educators had always said needed to be done to increase student achievement — it reduced class size, decreased teacher workload, increased teacher pay, and dramatically expanded spending per pupil — but none of it worked.

The great C-130-loads of money being air-dropped on the system also brought about waste and corruption on a heroic scale. Theft was rampant. So was overmanning: The project became a huge jobs and patronage program, with the inevitable mismanagement and scandals.

So that’s not the answer. I don’t know what it is, beyond the obvious, but I do know that an educated citizenry is necessary for a democracy to flourish and I think we are in big trouble because we have a lot of citizens who don’t read and know no history. And they vote.

The Republican Plan

Thursday, September 17th, 2009

Today, the left is panicking that the Blue Dogs may abandon Obamacare as a bad job and join the House Republicans in supporting HR 3400. What does it do ?
Let’s go through them one by one.

1. Makes individual health insurance premiums tax deductible.
2. It has a refundable tax credit for low income purchasers.
3. Makes block grants to states for reinsurance pools for pre-existing conditions. That sounds like the 2004 Kerry proposal.
4. Supports employer sponsored plans.
5. Provides “Portals” to assist in buying insurance.
6. Makes employer insurance defined benefit so the employee owns it, like 401Ks, I think
7. Creates pools for insurance and allows interstate purchase of health insurance.
8. Medicaid and SCHIP are given the option of vouchers.
9. States must cover 90% of those below 200% of poverty level before eligibility can be expanded.
10. Involves specialty societies in quality improvement.
11. Improves primary care and “continuity of care” reimbursement.
12. Allows discounts for wellness programs.
13. TORT REFORM !!!
14. The usual “waste, fraud and abuse” rhetoric.

It will be interesting to see where this goes. The House leadership has already produced a response but there seems to be some disagreement on the actual provisionsof the bill, as would be expected.

Why “Shall Issue” rules are a disaster.

Wednesday, September 16th, 2009

There is considerable speculation that the Obama administration, desperate for some sort of health bill to pass, will choose to bash health insurance with an “insurance reform” bill. What is this likely to look like ? What does the Baucus bill say ?

Like other proposals in circulation, Baucus’ plan would require insurance companies to sell coverage to all seeking it, without exclusions for pre-existing medical conditions or prohibitively expensive premiums. The Maine experience should be of interest here. Maine has insurance exchanges, shall issue rules that do not allow insurance companies to turn down applicants with pre-existing conditions, and it has been in existence for six years. How did that work out ?

In 2003, the state to great fanfare enacted its own version of universal health care. Democratic Governor John Baldacci signed the plan into law with a bevy of familiar promises. By 2009, it would cover all of Maine’s approximately 128,000 uninsured citizens. System-wide controls on hospital and physician costs would hold down insurance premiums. There would be no tax increases. The program was going to provide insurance for everyone and save businesses and patients money at the same time.

After five years, fiscal realities as brutal as the waves that crash along Maine’s famous coastline have hit the insurance plan. The system that was supposed to save money has cost taxpayers $155 million and is still rising.

Hmmm

Then the state created a “public option” known as DirigoChoice. (Dirigo is the state motto, meaning “I Lead.”) This plan would compete with private plans such as Blue Cross. To entice lower income Mainers to enroll, it offered taxpayer-subsidized premiums. The plan’s original funding source was $50 million of federal stimulus money the state got in 2003. Over time, the plan was to be “paid for by savings in the health-care system.” This is precisely the promise of ObamaCare. Maine saved by squeezing payments to hospitals and physicians.

The program flew off track fast. At its peak in 2006, only about 15,000 people had enrolled in the DirigoChoice program. That number has dropped to below 10,000, according to the state’s own reporting. About two-thirds of those who enrolled already had insurance, which they dropped in favor of the public option and its subsidies. Instead of 128,000 uninsured in the program today, the actual number is just 3,400. Despite the giant expansions in Maine’s Medicaid program and the new, subsidized public choice option, the number of uninsured in the state today is only slightly lower that in 2004 when the program began.

That doesn’t sound like Obama’s promises, does it ?

The sickest, most expensive patients crowded into DirigoChoice, unbalancing its insurance pool and raising costs. That made it unattractive for healthier and lower-risk enrollees. And as a result, few low-income Mainers have been able to afford the premiums, even at subsidized rates.

This problem was exacerbated because since the early 1990s Maine has required insurers to adhere to community rating and guaranteed issue, which requires that insurers cover anyone who applies, regardless of their health condition and at a uniform premium. These rules—which are in the Obama plan—have relentlessly driven up insurance costs in Maine, especially for healthy people.

The Maine Heritage Policy Center, which has tracked the plan closely, points out that largely because of these insurance rules, a healthy male in Maine who is 30 and single pays a monthly premium of $762 in the individual market; next door in New Hampshire he pays $222 a month. The Granite State doesn’t have community rating and guaranteed issue.

So, this is an improvement ?

A program that was supposed to save money by reducing health-care waste and inefficiencies has seen a 74% increase in premiums. But even those inflated payments can’t keep the program out of the red.

This is a preview of Obamacare. These people must not read as the evidence that their plan won’t work is all around them.

Of course, the young voters who put Obama in e White House will pay through the nose. What’s not to like ?

A 2008 study by the Urban Institute found that more than 10 million young adults ages 19 to 26 lack health insurance coverage. For many of those people, health-care reform would offer the promise of relatively inexpensive individual policies, which do not exist in many states today.

The trade-off is that young people would no longer be permitted to bet on their good health: All the reform legislation before Congress would require individuals to buy at least minimal coverage.

Another bill will be introduced Wednesday by the chairman of the Senate Finance Committee. Sen. Max Baucus (D-Mont.) will offer in it a proposal to keep premiums manageable: a bare-bones catastrophic policy that would protect young people from financial calamity while providing basic preventive care.

Drafting young adults into any health-care reform package is crucial to paying for it. As low-cost additions to insurance pools, young adults would help dilute the expense of covering older, sicker people. Depending on how Congress requires insurers to price their policies, this group could even wind up paying disproportionately hefty premiums — effectively subsidizing coverage for their parents.

Hey, I’m old. It sounds good to me.

The coming depression

Tuesday, September 15th, 2009

Unless the election next year reverses the present course of this administration, we are on course to repeat most of the mistakes that led to the last Depression. The trade war is under way now and seems to be fulfilling the role played by Smoot-Hawley in 1930.

The modern free-trade era began during the Great Depression, after the catastrophe of the Smoot-Hawley tariff of June 1930. Hoover also thought he was shrewdly playing tactical politics by adopting a tariff that the economist Joseph Schumpeter said was the “household remedy” of the Republican Party at the time. But the tariff ignited a beggar-thy-neighbor reaction around the world, and the flow of global goods and services collapsed.

FDR’s Secretary of State Cordell Hull recognized the damage, and he began rebuilding a pro-trade consensus with a series of bilateral accords in the 1930s. In the aftermath of World War II, John Maynard Keynes, Harry Dexter White and others on both sides of the Atlantic continued this progress by negotiating the Bretton Woods currency accords and creating the Global Agreement on Tariffs and Trade.

Like Britain in the 19th century, the U.S. has been the linchpin of this liberal trading order that despite occasional setbacks has moved in the direction of lower tariffs and fewer nontariff barriers. As the world’s largest economy, the U.S. has largely kept its market open, using access to U.S. consumers as a lever to open other countries to foreign goods and services. Even as Big Labor broke with this consensus, Bill Clinton continued this bipartisan tradition by supporting Nafta, and prodding Congress to ratify the World Trade Organization and most-favored nation trading status for China.

That era appears to be over. People are fleeing unions in the wake of disastrous results of their actions but it may be too late as this president has shown he is totally in the pocket of unions. Why else the government takeover of the auto makers ?

What other mistakes are repeating the run-up to the Depression ? One cause of the recent financial meltdown was excessive reliance on credit ratings that were too optimistic. Why did the banks and investment funds do this ? Because, going back to the 1930s, regulators insisted that they do so. We are being told that regulation was too lax. In fact, it may have been too tight, leading institutions that should have been able to assess risk to rely on false signals. Here is more on this story (pdf). The cost of amnesia may come higher this time. We are more in debt than we were when Carter tried to take the economy down.

The housing bubble resembles the Latin American bond bubble of the 1920s. The difference is that the buyers in the 1920s were unsophisticated small investors while the buyers in the 2000s were banks and investment funds that should have known better. Why didn’t they ? A lot of it was government policy, like CRA.

The AIG near-collapse was a classical bank run although those participating were other financial institutions that had purchased credit default swaps from AIG and feared that they would run out of money before all the swaps were honored. The dynamics were identical to the sort of bank run illustrated in “It’s a Wonderful Life.” Now the government appears to be concerned with reinflating the real estate bubble. Spending is totally out of control and much of it is going to dubious projects.

Herbert Hoover was determined to keep wages high and this president seems to have the same goals although he seems to care about union wages mostly. If GM and Chrysler had been able to seek bankruptcy protection, their high cost union contracts could have been renegotiated with a judge standing by to enforce reality. Obama instead took them over with government money and stiffed non-union creditors while giving the companies to the unions. This sort of thing looks a lot like Hoover. Now, Obama is going after everybody but the people responsible and will burden the positive parts of the economy with more regulation that does nothing. This is how Depressions begin.

Roosevelt did something similar in supporting TVA over private utilities in the 1930s. Wendell Willkie became a national figure when he battled Roosevelt over the TVA. He lost the TVA fight but, had World War II not intervened, he might have defeated him in the election of 1940. Where is our Willkie now ?

Green shoots of hope ?

Monday, September 14th, 2009

There has been some talk of an impending recovery, maybe in time for the 2010 election. Don’t count on it.
ghost fleet

Those are 500 ships, mostly tankers and container ships, that are anchored near Singapore. They are about 12 % of the commercial fleet and there are estimates that soon it may reach 25%.

Here, on a sleepy stretch of shoreline at the far end of Asia, is surely the biggest and most secretive gathering of ships in maritime history. Their numbers are equivalent to the entire British and American navies combined; their tonnage is far greater. Container ships, bulk carriers, oil tankers – all should be steaming fully laden between China, Britain, Europe and the US, stocking camera shops, PC Worlds and Argos depots ahead of the retail pandemonium of 2009. But their water has been stolen.
They are a powerful and tangible representation of the hurricanes that have been wrought by the global economic crisis; an iron curtain drawn along the coastline of the southern edge of Malaysia’s rural Johor state, 50 miles east of Singapore harbour.

Obama’s new trade war with China will not help.

Some experts believe the ratio of container ships sitting idle could rise to 25 per cent within two years in an extraordinary downturn that shipping giant Maersk has called a ‘crisis of historic dimensions’. Last month the company reported its first half-year loss in its 105-year history.
Martin Stopford, managing director of Clarksons, London’s biggest ship broker, says container shipping has been hit particularly hard: ‘In 2006 and 2007 trade was growing at 11 per cent. In 2008 it slowed down by 4.7 per cent. This year we think it might go down by as much as eight per cent. If it costs £7,000 a day to put the ship to sea and if you only get £6,000 a day, than you have got a decision to make.
‘Yet at the same time, the supply of container ships is growing. This year, supply could be up by around 12 per cent and demand is down by eight per cent. Twenty per cent spare is a lot of spare of anything – and it’s come out of nowhere.’
These empty ships should be carrying Christmas over to the West. All retailers will have already ordered their stock for the festive season long ago. With more than 92 per cent of all goods coming into the UK by sea, much of it should be on its way here if it is going to make it to the shelves before Christmas.

I recently posted my opinion that the stock market rally may be over. I haven’t changed my mind. The assault on capitalism by this administration will be a disaster.

Catastrophic Illness

Saturday, September 12th, 2009

How does any health insurance plan deal with catastrophic illness? This is the Achilles heel of private insurance, especially of the individual or small group policy variety. In 2004, John Kerry, of all people, came up with a useful suggestion. It is the concept of reinsurance, a well known factor in other types of insurance but subject to the moral hazard problem. Part of the problem is that the Kerry legislation is an example of cost shifting, like so much else of government health care. Here is the concept:

Fully reforming the healthcare system will require that the federal government begin shouldering some of the burden to help alleviate costs. One percent of patients account for a quarter of healthcare costs. By the same token, 2 out of 10 patients account for more than 80 percent of all healthcare costs. . To make healthcare more affordable, there must be a better way to share the immense burden of insuring the chronically ill and seriously injured.

Part of the reason that businesses and health plans today fail to cover their workers is an aversion to risk — a fear that they will be saddled with a sick employee whose high premiums will bankrupt them. Take a small business with just five employees, for example. If one worker has a major heart attack, the cost of care for the other four shoots up, potentially causing the company to drop health coverage entirely.

But there’s a way to combat these costs. And Washington should make employers and healthcare plans an offer they can’t refuse.

It’s called “reinsurance.” Reinsurance means that if employers agree to offer all their workers preventative care and quality coverage, then the federal government will reimburse them for a significant portion of the costs of their chronically ill employees.

Preventive care is overrated but there are provisions, like weight and smoking rules, that could reduce the risk. These are real concerns as the example shows.

All it took was one cancer case and one chronic illness — two employees out of 50 — and the health insurance premiums of an Ohio faucet company jumped from $200,000 to $350,000 in a year.

Raymond Arth, who owns Phoenix Products in Avon Lake, Ohio, said he could not blame his insurer, Medical Mutual of Ohio, for the increase; for every $1 he had paid in premiums, the insurance company had paid out $2.08 in claims. Medical Mutual could not afford to take that kind of risk again and Arth could not afford the higher premium, so he went searching for a new policy.

Such catastrophic claims account for less than half of 1 percent of all claims but generate 20 percent of the nation’s health care costs, according to the latest federal data. To cover those costs, insurers such as Medical Mutual boost premiums, often forcing companies and individuals to dig deeper in their pockets or go without care.

This is the reason why reinsurance has a lot of attractiveness. There is a problem, though. If the risk is assumed by others, a characteristic of all health insurance, the motivation to control costs is weakened. Cost shifting, once again.

At the center of Kerry’s ideas is his proposal to have the federal government reimburse employers 75 percent of medical bills over $50,000 that a worker runs up in a year. The reimbursement would, in effect, make the government a secondary insurer and ease costs for employers, workers and private insurers.

In exchange for the benefit, Kerry would require employers to offer insurance to every worker and to provide health programs that detect and manage chronic illnesses such as high blood pressure early enough to prevent the diseases from worsening.

There is merit in this idea but there must also be some effort at cost control. Medicare shows what can happen when there is little effective control of costs. What do we do ? Taking over the entire national health care system at one stroke is not the answer but this proposal might be part of an answer.

Health reform suggestions

Thursday, September 10th, 2009

Next week, I have been asked to speak to a local Republican group on health reform. I have some ideas, as anyone who has read this blog knows, and will try to give some background, as well. What Obama and the Democrats are proposing will not work and will result in titanic deficits, rationing and probably rebellion by the public even more intense than the preview we got last month. What to do then ?

1. We must use market-style incentives to reduce moral hazard and encourage practical limits on what people want from the system. One way to do that is to separate insurance from pre-paid care. What we now call health insurance is a combination of the two. That is one reason why it is too expensive. People are willing to pay out of pocket for routine medical expenses, up to a reasonable limit. Let them do so.

2. Some people like HMOs, so let them join an HMO if that is what they want.

3. The French system asks the patient to pay the doctor, or the laboratory, first, then get reimbursed by the health plan. That is a way to reduce moral hazard.

4. Let the health plans (notice the plural) set a fee schedule and stick to it. That fee schedule is what the plan pays, not necessarily what the doctor is paid. If the patient wants to see a special doctor, pay more but expect only to be reimbursed the set amount. This introduces some negotiation between doctor and patient and some realism on what health care costs.

5. Fees and charges have to be public information, preferably posted in the waiting room or on the internet. Today, they are secret because insurance companies and Medicare compete to get discounts from doctors and hospitals. This locks in a medical fee inflation and keeps the “retail” charges unrealistically high.

6. What about the poor ? Gary Becker got a Nobel Prize for demonstrating that the poor are also capable of responding to incentives. Welfare Reform should have established that as fact. Many people are poor because they are young and are still getting educated. Their health costs are very low but they do run the risk of injury or occasional illness that needs to be treated. Many of the rest of the poor have behavioral problems or lack of education, or both, that will keep them poor most of their lives. They also, because of these behavioral problems, have higher medical costs. They should have access to community clinics and city hospitals that used to provide good care but have been neglected since 1965. Lyndon Johnson was going to provide “mainstream” care to the poor and so the big public hospitals were excluded from the Medicaid program and have suffered as they were overwhelmed by illegal aliens. The “mainstream care” was always a fraud because the payment was poor and the paperwork onerous. As a result, Medicaid is full of fraud and abuse. We need to provide medical care for these people and they probably cannot pay for most of it. Public clinics and public hospitals are the answer. How to staff them ? Too many young doctors emerge from years of training heavily in debt. This is an incentive to seek higher paying specialties and avoid the poor. Why not make a deal ? If young physicians will accept the basic fee schedule as full payment, or work on salary in public clinics and hospitals, forgive the medical school loans. It is already a popular idea and has worked for the military, which offers tuition payment for a commitment to serve as a medical officer. The objection to this sort of solution will be that it establishes a “Two tier” system. So be it.

7. What about employer-based insurance ? Here, I advocate some sort of coop, not a government coop because I don’t trust government, but a coop that is run by a board made up of members, providers and employers if it is work connected. It could be funded by payroll deductions but the members would not be employees of a single company. Maybe it would be organized along vocational lines such as engineers or pilots or unions. There should also be an equality of tax incentives. Either make all health insurance taxable or limit the deduction and make it available to all.

8. What about tort reform ? Some of this is a way to needle Democrats who are so dependent on trial lawyers. There is defensive medicine and there is a way to limit liability. California did a good job of this in 1975 with MICRA. A national tort reform could do worse than copy MICRA. When I began practice in 1972, my malpractice premiums were $3500 per year. Two years later, the premium went to $35,000 per year and my partner and I discovered that our insurance carrier was insolvent. We practiced without insurance for the next three years. Eventually, doctors formed a coop in which everyone agreed to be responsible for losses incurred by lawsuits against members of the coop. We each put up $20,000 to establish a trust fund and the theory was that the interest on the trust fund would be used to pay expenses and claims. We were also assessed each year with our assessment based on the estimated risk for our specialty. As general surgeons, we each paid about $6,000 per year. When I retired from practice 25 years later, I got the $20,000 back as a refund.

I’d say that speaks well for the system. There is one caveat, though. Because we were a coop and were personally guaranteeing the losses, we were allowed to exclude applicants with no explanation. When a new applicant submitted the paperwork, letters were sent to members asking if we had any objection to this doctor joining our coop. I personally submitted objections to a couple of surgeons that I knew had problems. They were not admitted. Doing this on a national basis would be more complicated. Those rejected doctors got insurance from somebody. Caveat Emptor.

Anyway, those are a few thoughts about where to go. This is a problem with a number of solutions. They are incremental and do not require the radical restructuring proposed by the Democrats.

The rally may be over

Tuesday, September 8th, 2009

I have thought all along that this was a bear market rally since March. Now, there are signs that insiders are selling so they think it is over. Selling is 30 times buying by insiders and sophisticated investors. Why ? Look at the coming consideration of Cap and Trade. Why would anyone invest in the USA ? Maybe if it fails, the market will rally.

Obama has no concept of economics and I doubt he has many advisors who do. There just doesn’t seem to be a Robert Rubin who could lecture Bill Clinton. The Democrats even admit that Cap and Trade will cost jobs.

House Speaker Nancy Pelosi of California urged her colleagues to vote in favor of the cap and trade bill, saying the measure was about four things: “jobs, jobs, jobs, and jobs.”

She was right—the House-passed version of cap and trade is all about jobs: jobs lost, jobs never created, jobs sent overseas, and, unbelievably, jobs people will be paid for doing long after they cease to exist.

According to Friday’s Washington Times, the legislation includes language that provides, should it become law, that people who lose their jobs because of it “could get a weekly paycheck for up to three years, subsidies to find new work and other generous benefits—courtesy of Uncle Sam.”

How generous are these benefits? Well, according to the Times, “Adversely affected employees in oil, coal and other fossil-fuel sector jobs would qualify for a weekly check worth 70 percent of their current salary for up to three years. In addition, they would get $1,500 for job-search assistance and $1,500 for moving expenses from the bill’s ‘climate change worker adjustment assistance’ program, which is expected to cost $4.2 billion from 2011 to 2019.”

Instead of being a the source of millions of new jobs of “green jobs”—as House Democrats are fond of saying over and over again—the provision is a hidden admission that their effort is a job killer, not just a massive new tax on energy.

That should certainly make the stock market sit up and take notice.